ICI Draft Letter on Basel Committee's Proposed Standards Regarding a Global Framework for Banks' Liquidity Risk Management

 

 

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April 12, 2010

TO: INTERNATIONAL COMMITTEE No. 3-10
MONEY MARKET FUNDS ADVISORY COMMITTEE No. 12-10
MUNICIPAL SECURITIES ADVISORY COMMITTEE No. 10-10
SEC RULES COMMITTEE No. 16-10     RE: ICI DRAFT LETTER ON BASEL COMMITTEE'S PROPOSED STANDARDS REGARDING A GLOBAL FRAMEWORK FOR BANKS' LIQUIDITY RISK MANAGEMENT

 

The Basel Committee on Banking Supervision has proposed standards to establish a global framework to strengthen the supervision and monitoring of a bank’s liquidity risk management, including the control of liquidity risk exposures. *  Central to its efforts, the Committee has proposed regulatory standards to achieve separate but complementary objectives: (1) a liquidity coverage ratio to promote short-term resiliency of the liquidity risk profile of banks and (2) a net stable funding ratio to promote resiliency over a longer term with more stable sources of funding.  The Institute has prepared a draft letter that is limited to the Committee’s recommendation concerning the net stable funding ratio and the treatment of “money market mutual funds.” 

 

Comments to the Institute’s draft comment letter should be in writing and sent by email to Susan Olson at solson@ici.org or the undersigned at jheinrichs@ici.org by Thursday, April 15.

 

The draft letter states that we are particularly supportive of the Committee’s approach in the net stable funding ratio that would, under certain circumstances, give supervisors the flexibility to consider various liquidity risk factors regarding “money market mutual funds” based on their national circumstances.  The letter notes that there is no global harmonized definition of a “money market fund” and the Committee has not defined the term “money market mutual funds” in its work.  In fact, the letter states that there are important and substantial differences among money market funds around the world.  In addition, the letter states that it is important to note that some of these funds, but not all, may be subject to specific national rules.  Given the diversity in national approaches to money market funds, the draft letter states that flexibility is especially important because national supervisors will need the ability to consider the risk factors that should be appropriately applied to the money market fund or funds in their jurisdiction.  For example, in the US, money market funds would typically refer to registered investment companies that seek to maintain a stable net asset value, typically at $1.00 per share, and comply with Rule 2a-7.  Such funds are highly regulated and clearly defined under a specific regulatory framework of the Investment Company Act of 1940.  Consequently, the draft letter concludes that a US money market fund should be evaluated and treated differently under this ratio than an unregulated or less regulated fund.

 

Jane G. Heinrichs
Senior Associate Counsel

 

Attachment

endnotes

 * Basel Committee on Banking Supervision, Consultative Document, International Framework for Liquidity Risk Measurement, Standards and Monitoring, December, 2009 (“Document”), available at http://www.bis.org/publ/bcbs165.pdf.